What are labor laws like in Mexico?

Mexican flag

Labor laws in Mexico include a variety of differences not found in other countries around the world. Employers looking to hire employees in Mexico should take time to familiarize themselves with the unique requirements of Mexican labor laws.

Recent changes in Mexican labor laws

Labor laws in Mexico have changed substantially over the last few years. Some of these laws changed because of new rules defined by the USMCA, the trade agreement that replaced NAFTA for Mexico, Canada, and the United States.

In 2019, Mexico enacted new rules to combat discrimination and unfair labor practices in the workplace. These rules require companies with employees in Mexico to collaborate with their workforces to create internal policies to help prevent issues of discrimination, intimidtation, sexual harassment, and other problems, including the employment of children.

Many of the changes in Mexican labor laws have made life easier for employers. For example, where companies used to be subject to regular inspections for compliance, many companies can now self-report their compliance through a government website, which then informs them of any breaches and provides timelines for corrective action. Self-reporting in this way is voluntary, but employers who self-report and are found to be in compliance receive certificates confirming their good standing.

Of course, self-reporting inaccurate information can lead to additional inspections, fines, legal penalties, and other problems, so employers should not misuse the convenience.

Labor unions in Mexico

Labor union laws in Mexico require unions to provide represented workers with direct input during labor negotiations. This means unions cannot agree on new collective bargaining agreements without the approval of the workers being represented.

To prevent fracturing of worker representation, Mexican law generally prevents employers from entering into more than one agreement with more than one union. Should a company or workforce necessitate additional representation, government processes exist to determine which union, if any, will represent the workers.

All collective bargaining agreements in Mexico must be approved by the majority of workers before being accepted and filed with the appropriate agencies. Agreements do not go into effect until this process has been completed.

Legal strikes in Mexico require workers to submit proof that they are represented by an appropriate union. Courts in Mexico act as mediators, and legal strikes cannot begin until the union and employer have attempted to reconcile their differences before a judicial entity.

Terminating employees in Mexico

To terminate an employee in Mexico, the employer must first consider the nature of the employment contract.

Indefinite contracts, which cover most Mexican jobs, entitle workers to severance pay. Definite contracts are rarer and define a specific length of time or scope of work to be completed. Employers do not have to pay severance outside of the agreed terms of compensation at the end of a definite contract.

Any employee who works for at least one month for an employer without a definite contract is assumed to be an indefinite employee, but employees with even less time can also be considered workers on indefinite contracts in certain cases. Companies should not depend on probationary periods for protection when hiring in Mexico.

Workers terminated on indefinite contracts leave companies in three ways: voluntary resignation, termination with cause, and termination without cause. These three types of termination all provide severance benefits to workers, increasing in amount depending on the nature of the separation.

Employers are not required to give advance notice for termination in Mexico.

Payroll laws in Mexico

Companies with Mexican employees must either work with an employer of record, such as Remote, or establish their own local legal entities within the country. Because establishing an entity can take several months and cost several thousand dollars, most employers find it more affordable to work with an employer of record. Remote handles payroll, benefits, taxes, and compliance for employers in Mexico for a low flat rate.

According to Mexican law, employers of workers in Mexico cannot pay workers in dollars or at non-approved banks. All workers must be paid in Mexican pesos through banks approved by the government. 

Paystubs or payslips in Mexico require approval by the Servicio de Administración Tributaria, or SAT, the revenue service of the Mexican government. Payslips must be approved by the SAT before employers can provide workers with copies.

Employees versus contractors in Mexico

Contractors in Mexico operate much the same as contractors in other parts of the world. Employers may not require specific work hours or oversee work performed by contractors outside the delivery of the requested services.

Labor reforms in Mexico have increased the penalties for misclassification of workers in the last 10 years. Exclusivity deals, including non-compete clauses, can indicate an employment relationship to Mexican authorities and entitle contractors to benefits as if they were employees. Companies attempting to use contractors in Mexico without understanding the rules for doing so may run into permanent establishment risk, which can carry heavy penalties. Outside of short-term contracts, employers should seek to employ workers as full-time employees through an employer of record or local legal entity whenever possible.

Navigating labor laws in Mexico

Labor laws in Mexico have changed substantially in recent years. Employers who have hired workers in Mexico before may find that their old policies no longer apply. Those looking to hire their first workers in Mexico must take care to abide by all applicable laws.

With Remote as your employer of record, companies of all sizes can hire employees in Mexico with confidence. We handle payroll, statutory and premium benefits, tax reporting, and legal compliance, so you can focus on growing your global business. Contact us today to learn more about our Mexico employer of record solution.

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